Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost DistortionThe management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide productstrategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method.The following factory overhead was budgeted for Nova:Fabrication Department factory overheadAssembly Department factory overheadTotalDirect labor hours were estimated as follows:Fabrication DepartmentAssembly DepartmentTotalIn addition, the direct labor hours (dlh) used to produce a unit of each product in each department were determined from engineering records, as follows:Production Departments Gasoline Engine Diesel EngineFabrication Department1.20 dlh2.80 dlhAssembly DepartmentDirect labor hours per unita. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate method, using direct labor hours as the activity base.per unit$$2.80$4.00 dlh$Gasoline engineDiesel engineb. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the multiple production department factory overhead rate method, using direct labor hours as the activity base for each department.per unitper unit$680,000280,000$960,0004,000 hours4,0008,000 hours1.20per unitGasoline engineDiesel enginec. Recommend to management a product costing approach, based on your analyses in (a) and (b).Management should select theper unit. Each product uses the direct labor hours4.00 dlhfactory overhead rate method of allocating overhead costs. TheThus, thefactory overhead rate method indicates that both products have the same factory overheadrate method avoids the cost distortions by accounting for the overhead

Name: Single Plantwide and Multiple Production Department Factory Overhead
Uploaded: 2024-03-20T06:32:49.000Z
Channel: Bartleby
Description: Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost DistortionThe management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly

Single Plantwide Factory Overhead Rate Method Is Calculated By Using Estimated Total Overhead…

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Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate metho The following factory overhead was budgeted for Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total 1.20 dlh 2.80 4.00 dlh $680,000 280,000 $960,000 In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: Production Departments Gasoline Engine Diesel Engine Fabrication Department 2.80 dih Assembly Department 1.20 Direct labor hours per unit 4.00 dih 4,000 hours 4,000 8,000 hours per unit per unit a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate method, using direct labor hours as the activity base. Gasoline engine $ per unit Diesel engine per unit b. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the multiple production department factory overhead rate method, using direct labor hours as the activity base for each department. Gasoline engine $ Diesel engine c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Management should select the per unit. Each product uses the direct labor hours factory overhead rate method of allocating overhead costs. The Thus, the factory overhead rate method indicates that both products have the same factory overhead rate method avoids the cost distortions by accounting for the overhead